There’s no shortage of advice about how to save enough to retire early, but in some cases, you may want to consider the opposite. By deciding to work another year, you can realize a host of benefits that can permanently increase your retirement income, reduce your outstanding debts and make life less stressful.
Let’s take a look at five reasons to consider working another year before retirement.
#1. Save $20,000 in Health Insurance
The average monthly premium for individual policyholders between the ages of 55 and 64 reached nearly $800 per month in 2019, according to eHealth. While the year-over-year increase was modest, it’s a huge increase from the $500 per month average in 2014 when the Affordable Care Act took effect.
If you’re retiring before age 65, you are not eligible for Medicare and need to budget for these high health insurance costs. While Medicare isn’t free, it’s far less than the amount that retirees would pay in the private market for comparable individual healthcare coverage.
There’s also the opportunity cost of spending money on health insurance that could be invested in the stock market or used to pay off debt. If your employer provides insurance, the nearly $20,000 per couple in health insurance savings could make a huge difference in your retirement plans.
#2. Double Your Retirement Contribution
Many companies provide a 401(k) option to employees, which provides a partial or full match for any worker contributions. If you have this option through your employer, you can realize a 100% return on your contributions overnight! Maxing out these figures for even one year can pay huge dividends.
In addition, working another year means that you can leave the money you would have withdrawn in the market for another year. The stock market produces an average compound annual growth rate of between 7% and 8%, when accounting for dividends, and rises more than 70% of the time.
A higher balance in your retirement account also means that you can generate more investment income over time. For example, The Snider Investment Method uses call options to generate income from a portfolio of high-quality stocks — more capital you have to invest means more income potential.
#3. Increase Cash Flow by Paying Off Debt
There has been a significant increase in debt among retirees over the past decade. According to EBRI, household debt for 50 to 64-year-old households rose from $80,000 in 1992 to $120,000 in 2016. Meanwhile, the percentage of 65 to 74-year-old households with debt reached 57% in 2016.
Credit card debt, car loans, and mortgages can have a significant impact on your retirement cash flow. In particular, variable-rate mortgages can be devastating for those on a fixed income, and if you fall behind, it can become impossible to catch up on payments.
Working an extra year can help you meaningfully pay down these debts, reduce stress levels and increase your monthly cash flow in retirement. You won’t have to worry about repaying debt on a fixed income or incurring any penalties that could result in everything from repossession to foreclosure.
#4. Get an Instant 8% Raise in Social Security
Social Security benefits replace about 38% of past earnings, according to CBPP, providing an average of $1,470 per month or $17,640 per year in 2019. Despite these modest amounts, one in four seniors relies on Social Security for at least 90% of their income, making it the single most important contributor.
Delaying Social Security benefits by a single year can have a huge impact on your permanent income from the program. A one-year delay translates to a permanent 8% increase in Social Security income! The difference between taking benefits at 62 versus 70 is a stunning 62% increase in income!
You may want to consider working one (or a few) more years to delay taking benefits and realize a significantly higher permanent income in retirement. It’s especially important to consider delaying benefits if Social Security will account for the majority of your retirement income.
#5. Maximize Your Spending Power
Suppose that you have enough money for retirement, you’ve paid off all of your debts, and you’re not reliant on Social Security for your income. You may still want to work one more year to further increase your spending power during retirement, which can make it more enjoyable and less stressful.
When factoring in everything we’ve mentioned above, you could be able to save $20,000 per couple in health insurance costs, max out your 401(k) for another year, and permanently increase your Social Security income. Just imagine what you could do with all of that extra money during retirement!
The Bottom Line
Most people want to retire as early as possible, but jumping into retirement can be extremely costly. By delaying retirement just one year, you could realize a host of benefits that result in a permanent increase in your income, less outstanding debt, and a far less stressful retirement.
If you’re looking for ways to boost your income in retirement, you may want to check out the Snider Investment Method. You can generate an income from a portfolio of high-quality stocks using call options rather than relying on a fixed-income portfolio that has relatively little upside potential.